Let’s Set the Taleb
There is no reason to speculate on when Bitcoin will crash. Yes, many and many prominent critics have pointed out all its inherent problems and risks and those of all cryptocurrencies. This crowd of naysayers includes stars of financial and other risk disciplines Nouriel Roubini, Nassim Taleb, Daniel Kahneman, et al.
Ultimately, the responses to the growing Crypto believers comes down to the fervent belief of a massive and still growing “herd”. The volatility of Crypto creates a large majority of both winners and losers at any time. Losers don’t like to lose and winners love to keep winning. Both are the circumstances that draw on deep instincts that short circuit rational behavior. Empirical evidence and understanding of risk and probability are absent or completely overridden. This taps into the human responses that either you are chasing down that bison for food or running from the lion…. together along with rest of your tribe.
The number of issues and risks one can point out is large, such as its technology’s inability to scale or its impact on the environment. And many of these are well and widely known now even in the believer community. Nothing adheres.
The biggest reason that backstops the resilience of belief in crypto is that in its recent 48 month history it has performed exceptionally well, even with a few stomach-in-throat drops. Those who bought after 1-Feb-2021 and are still holding may be testing their beliefs, but the ideology (because it is that) of HODLing seems to have worked for most of its short history and serves to override any temptation to exit for a majority of investors.
No Knowledge is Good Knowledge
Investors in conventional products (equities, fixed income, currencies, and commodities) have something they can empirically rely on when they need to understand whether they should buy or sell. Value is something real that can be reasonably objectively assessed: income, profit, governance, use cases, demand, supply, etc. Using these has a solid history of at least of few hundred years. If a thing is going up in price, you have an empirical point of reference to say it is more valuable. You can investigate that and verify if it makes sense. And if you are taking a risk. If something just keeps going up and the underlying value metrics do not, you can act with almost perfect certainty it was the right thing to do.
With crypto, you have only one choice: believe it will always go up. Simplicity is beauty and there is no need to do any hard work. Or any work at all. In this sense, crypto can and does profile itself as the most “democratic” asset. No knowledge or judgement is required and not responsibility either. You are asked only to believe.
Simplicity is probably the most powerful attraction for crypto and why most people invested in it have never owned a stock or a bond.
As long as there are believers and the timeline for upside is presumed to be infinite, this will await a Madoff reckoning. That means another 20 years.
Pass the Madoff, Please!
Bernie Madoff was able to carry out the largest Ponzi scheme in history while operating as the 6th largest market maker in S&P stocks for more than 30 years.
Take that in: more than 30 years. And we are only really in the first 10 of Bitcoin.
Many people looked at Bernie’s performance and said it was implausible. But belief and institutional cred took away people’s ability to accept obvious facts.
Bitcoin’s/blockchain’s flaws are all now widely known and even acknowledged by many believers. For that reason, thousands of projects have sprung up to fix them. But the fix has no effect. Just like the flaws in any other belief system they have little or no effect on believers.
The plausibility of Madoff’s returns defied all known risk and return models. Very knowledgeable and sophisticated investors gave him money to “invest”. Many times over many years those who were appalled at the pronouncements of Madoff’s success were ignored and reduced largely to futile head shaking.
There will be no Kenneth Feinbergs
This is that same problem, but using Madoff’s timeline it’s only a third of the way in before the reckoning.
Before Bernie’s 37,000 investors realized that there was nothing there there, evaporation of principal and profit was $65 billion. But there was still some recovery of investors’ principal. That will never happen with Bitcoin or crypto.
So, buckle up. Bitcoin still likely has a long way to go. And the aftermath of 30 years of Madoff is a firecracker compared with the hydrogen bomb scale of loss that will one day occur.